Richard Moheban (aka Retired Aviator) earned a BBA in Finance, Investment & Banking from a national top ten (public) business school—the University of Wisconsin at Madison. He then went on to earn a BFA (with Honors) in 1992. After that, however, his one year of working in the corporate... More

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The following is taken from page 47 of the S-1A filed in conjunction with the public offering of shares/warrants in October 2014. Since sales activities are of such keen interest to Axionistas and subject to much speculation it behooves us to get our information straight from the proverbial horse's mouth.

Our Sales and Marketing Strategy

Over the last few years, our PbC technology evolved through the research, development, prototype and early adoption stages. On a parallel path, we explored potential existing as well as potential future market applications that our product might profitably service. Throughout the process, different PbC configurations, along with various ancillary components, were subject to trial and error testing. Our strategy was to find markets where our product demonstrated superior performance to the current products of choice; or where our product demonstrated a measurable cost savings alternative to those products; or where it provided a combination of the two. The end result of this process was the identification of specific target markets; the development of an improved PbC battery product that can be sold into those markets as a standalone unit; or as part of an entire Axion energy storage system such as our PowerCube; or as the battery component of someone else's energy storage system. The PowerCube includes not only PbC batteries but also all of the electronics necessary to accumulate or dispatch power from those batteries. The containerized Cube unit also includes battery racking, Axion's battery management system, all necessary wiring, a fire suppression system - in other words a complete plug and play system.

During this same time frame, we have slowly built an internal six person sales and marketing team, that includes four people in sales, a program manager and a customer service rep, all of whom are focused on developing and commercializing various targeted market segments. Our main focus for this team has gravitated to the areas of transportation and Cube storage. In transportation we are working with railroads, such as Norfolk Southern, where we have been shipping product since 2012; stop/start vehicle manufacturers where we have been shipping prototypes since 2010; heavy duty truck conversion companies, such as ePower where we have been shipping product since 2012. In Cube storage, we have been working with contractors and integrators for small commercial systems (installed 18 kilowatt zero energy building storage system for the Washington Naval Yard in 2012) and small residential systems. We have also been working with developers on larger storage systems that incorporate solar power, such as BySolar Inc. with which we have installed our first of five (5) individual 500 kilowatt systems. We have also developed a model system that will service the frequency regulation market, similar to the way our onsite PowerCube has been performing in the PJM network since 2011. We are actively marketing this model with BySolar and others. And finally, the power utility area has experienced some recent growth partially in response to regulatory pressures. We have dedicated initial assets to this area and are in the early stages of building a new team of additional business development managers, research and development expertise, and system programmers, for the specific purpose of actively pursuing revenue growth with customers in those target areas.

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Historically, we have actively participated in related industry networking and trade groups. With the new story we have to tell, we plan to increase that activity on a prospective basis. With our new initiatives, we plan to develop leads from purchasing appropriate databases and potential new customer lists. For example, we subscribe to a solar installer database and uses that data base to directly market to various installers. We also plan to increase our attendance and participation in various regional and national trade shows.

Of course sales cycle time varies greatly depending on the particular market and the specific customer's product knowledge and expectations, but generally speaking, excluding the transportation market, the time required to introduce our product to a new customer - through sale conclusion - is 4 to 6 months. We will partner with industry leaders in the various market segments to better penetrate targets that are suitable for our PbC systems. Most projects require some upfront expense to initiate the system development. This would be for battery production and software development to integrate the technology as a component in various component systems such as with the ongoing ePower project.

Rather than add to the huge volume of APC comments the Reverse Split has generated in the mere 2 days since the RS filing, I'll do this instablog and link to it on APC. Those interested can post thoughts here without adding yet more to the Concentrators on this. I think the Reverse Split proposal is very important and I hope all shareholders consider all aspects carefully before casting their vote. I encourage everybody to contact Axion's Investor Relations ASAP if they find the terms objectionable so Axion can alter the proposal to be equitable prior to the vote.

Background

The filing asks us to vote in favor of a reverse split somewhere between 1 for 20 and 1 for 50 shares. We will have between 1/20th to 1/50th of our former share count. Yet the 350 million shares we previously 'authorized' will not be adjusted in kind, nor adjusted at all, per the filing. In effect, instead of a headway of increasing the outstanding shares by 350m/225m or 55% currently, under this proposal the Board would get a headway of as much 350m/4.5m or 7700% more stock they could issue without any stockholder approval. I find this 'pork' that was slipped into the 'bill', whether it ultimately turns out to be material or not, to be extremely offensive and thus worrisome for the audacity of it alone.

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We are given two arguments why we shouldn't worry:

(1) The NASDAQ will protect us by ensuring we can vote on any share issuances.

My answer: We are not on the NASDAQ yet nor is there any guarantee we will be on NASDAQ if the split proposal is approved, nor any guarantee that if we get a NASDAQ listing we won't be delisted at some future date. This protection could be completely hollow.

(2) You can trust the Board not to be fast and loose with issuing the authorized shares.

My answer: Then why did it matter that the NASDAQ is protecting us? If (2) is true then (1) is meaningless and unnecessary. So I guess (2) is not such a certainty after all.

Further, any authoritative body that drafts a legal proposal to prorate all quantities equally and fairly is heading in the direction of earning my trust. Any such body that proposes things that are oddly unequal, unfair, and grossly distorting of the relative quantities prior to the proposal for no given reason is heading in the direction of warranting my distrust.

Thoughts

This whole debate is ass backwards. We shareholders are made to feel as though something is wrong with us for questioning grossly distorting, unequitable terms. The Board should be on the spot, not us, for proposing such terms.

Instead of the Board/CEO coming clean and asking shareholders for effectively what is a sky high authorization, it is not mentioned at all. Keen eyed shareholders have to spot it. In fact we are erroneously told "the net result leaves the shareholder exactly where they were before the split." Not true Mr. Granville.

If they aren't going to issue astronomical share quantities, then they don't need astronomical authorizations. Just keep it the same ratio. Prorate everything!

Analogical Musing

To conclude my rant, I'll use an analogy. It's not perfect but close enough to show just how ridiculous this proposal is:

Your neighbor comes to you and asks for a duplicate set of all your house keys. He says,

"I've been a good and trusted neighbor for years, you know me well, and you know I would NEVER under ANY circumstance use the keys. And while you're at it, you might as well give me the keys to your garage and cars too. And let me again assure you that for no reason under heaven will I EVER use ANY of the keys."

My answer: "Ok then. If you will never ever use the keys then you don't need a set."

The stock market selloff in fall of 2011 caused me to reassess my situation: as I've retired relatively young from regular employment to invest & trade full time, I might eventually face a serious cash flow problem. By having all my money (except for a year's living expenses) tied up in stocks, if the market did not recover timely I could eventually be forced to sell securities at a loss just to pay my bills. If the market tanked for years I could be in real trouble and watch my life savings wither. In fact, in recent years I had quit making contributions to my Roth IRA-my thinking being that if I ever did need to liquidate stocks prior to age 59½, then why suffer the early withdrawal taxes and/or penalties?

That was a big mistake-I should have continued my annual Roth contributions. Researching IRS Pub 590 on IRA's just now has enlightened me to some very good news that I didn't know: the tax law generally allows taking early distributions (after 5 tax years) from a Roth IRA up to the amount of your accumulated contributions without tax or penalty. The tax-free status makes sense because you've already paid income tax on the amounts you've contributed to a Roth,1 but the penalty-free status came as a big surprise. The exact verbiage on taxability from IRS Pub 590, Ch. 2 under the heading "Are Distributions Taxable?" is:

You generally do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). You also do not include distributions from your Roth IRA that you roll over tax free into another Roth IRA. You may have to include part of other distributions in your income. See Ordering Rules for Distributions, later. [bold mine]

Most people probably skip over the brief bit of text that I have bolded from within the lengthy Pub 509, to focus on the rather extensive rules for "qualified distributions." "Qualified distributions" from a Roth IRA that are made before reaching age 59½ involve being disabled, transfers on death, or the first time home buyer exception as shown in this nifty IRS flowchart (from Pub 590):2

But the idea that any flowchart-rejected unqualified early distributions could be free of tax or penalty (once they've sat in the Roth for just 5 tax years) was news to me. So I did further research in IRS Pub 590 and Form 8606, on penalties and found absolutely nothing for Roths. Searches within Pub 590, Chapter 2 (Roth IRAs) revealed that the Roth chapter does not even contain the words "penalty," "penalties," "10% tax," or "additional tax." I then did a double check on the web on the subject of penalties for Roth IRAs. Yep, everything I've read corroborates that there are no penalties on early withdrawals up to your accumulated contributions amount, provided those contributions have sat in the Roth for 5 years. One Motley Fool article gives a case study example. (Scroll down in the article to Example #4 with Rick.)

Long ago I learned that when trying to verify whether a choice I may be making has tax consequences or not, one of the quickest and surest ways is to simply work through the appropriate IRS Form that you would attach to your 1040. In this case it is Form 8606 which figures any tax on early distributions from a Roth IRA. For my readers, I've condensed the essence of Form 8606 into a quick and easy Excel spreadsheet you can download here.3My condensed spreadsheet version of Form 8606 boils it down to just a few basic numbers that many people can simply estimate off the top of their heads and likely come up with a pretty good idea as to whether or not they'll have any tax on an unqualified distribution. As for the 10% "additional tax" [penalty] referred to in the flowchart, the verbiage in the tax code seems murky and scant. I could not find anything on the 5 tax year rule as cited in the Motley Fool article for unqualified distributions. But Form 8606 did not have me calculating any penalty for early withdrawal, so that is promising. I could not find clear language on penalties in the code, so I phoned the IRS helpline.

If you're concerned that job loss or some other unforeseen circumstance could leave you short of cash long before 59½, and that fact is keeping you from maxing out your Roth IRA contributions, you might want to think again. If your Roth situation is more complicated than mine (due to conversions or previous early distributions, etc.) you'll certainly want to work through a Form 8606 more carefully. But if your situation is relatively straightforward, my spreadsheet will save you tons of time. You can always start with my spreadsheet and then dig deeper into the tax code only if you are unsure. I am not a tax professional, though, so if there is any doubt at all about your situation I'd consult your tax advisor, or call the IRS helpline at 1-800-829-1040 just to be sure.

1unlike a traditional IRA where you get a tax shelter at the time of contribution.

2there is also a one-time qualified distribution from any type of IRA allowed to fund a Health Savings Account (NYSE:HSA) for a maximum of one year's HSA contribution limit.

3earlier MS Office 2003 version here in case you don't have Office 2007 or later.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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